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The Importance of Appraisal Protection

May 4, 2021
/ by 
Mackenzie Kruvant
The Importance of Appraisal Protection

It is more difficult than ever to make a house a home in today’s market. Low inventory and an increase in competition—some from big businesses who are ready to pay all cash—have left worthy homeowners in the cold. We started Ribbon to get these homeowners back in the door and today we launch our newest step to do so: waived appraisal contingencies.

Ribbon’s Appraisal Protection is applicable on all Ribbon Cash Offers and guarantees your contract price up to your Ribbon Max Value. Give your client’s peace of mind. Get them the home they love.

Have some questions? Frances Bryant, our Senior Project Manager, has some answers below:

Q: Let’s start at the top, why is it so difficult to compete in this current market?

A: The current real estate market is unlike anything we’ve ever seen in recent history.  Low inventory rates and record low levels of inventory in some cities has created buyer demand that is outpacing supply, including new construction. Buyers in today’s market have to be aggressive when house hunting in order to win the home. In certain price points, sellers may list their home and immediately receive multiple offers, including “sight-unseen” offers, offers well over list price, offers that waive contingencies such as the inspection, repair, or appraisal, etc… In addition, buyers are putting larger amounts of deposits (ie: earnest money) in order to further strengthen their offer.  In today’s market, a buyer must act quickly, oftentimes viewing the home and submitting an offer within a few hours of each other, instead of having time to talk through the decision to make an offer and “sleep on it.”

Q: In your own words, why is Ribbon’s appraisal protection so valuable?

A: Appraisal Protection is an amazing product in today’s market. Not only does it make the buyer’s offer stand out, but it offers peace of mind to both the buyers and sellers that the deal won’t fall apart due to the appraisal for any reason. Even buyers who waive appraisal contingencies may still find another “out” of the contract and/or their loan could be completely denied.  Ribbon’s Appraisal Protection removes all of these pitfalls and makes a RibbonCash Offer even more enticing to accept.

Q: How does this work exactly?

A: Let's say you want to make an offer on a home listed at $350,000. You request a valuation from Ribbon through our platform and we value the home at $365,000 (this is the Ribbon Max Value). It's a competitive market so your buyer wants to offer over list price, at $360,000. If the home appraises for $355,000, usually you'd have to attempt to negotiate with the seller or walk away from the deal, however with Appraisal Protection, Ribbon will cover the difference of $5,000.  Our Offer Addendum provides the mechanics behind this coverage.

$350,000 List Price

$365,000 Ribbon Max Value

$360,000 Contract Price

$355,000 Appraised Value

Appraisal Protection Amount: $5,000

Q: Are there any other ways that can prepare your client for unexpected home appraisals?

A: Nothing can ever truly prepare a buyer for an appraisal that comes in below contract value. It is so stressful and time-consuming, and everyone is just hoping it will all work out; however it doesn’t always and the buyers are left without a home and the sellers have to put their property back on the market, sometimes disclosing the low appraisal value. The market ultimately dictates the price of the home (what sellers are willing to accept and what buyers are willing to pay), but the bank financing the deal must protect itself and therefore independent appraisers value where they feel the home would trade on the open market.  In short, set expectations and make sure the buyers (and sellers if you’re the listing agent) know and understand the ins and outs of appraisals and how a low value may negatively impact the trajectory of the transaction.

A few years ago I had a property (I was representing the buyer) that under-appraised.  This was in a more balanced supply market and the home had been on the market a few days. We wrote a really good offer under list price and it was accepted. We went through the whole process of inspections, obtaining the loan, setting up closing, etc... and the appraisal came back $35k under contract price (the home was in the mid-$500s). I was shocked, the buyer was shocked and the listing agent and seller were also very surprised. The issue was the basement and the value the appraiser assigned to it.  Even though the basement was fully finished, the appraiser valued it for less than the unfinished garage SF and after fighting the value on all fronts, my buyers ultimately walked away.  It was such a waste of time, energy and money, and the sellers weren’t in a position to concede $35k and the buyers didn’t want to overpay for the home and come out of pocket with all that cash at closing.

Q: When do you think the “seller’s market” will become more balanced? What key factors do you think need to change in order to balance the market?

  1. Interest rates will play a huge role in balancing out the market as will availability of new construction.  I personally believe we have at least another year in the current state (high buyer demand, low supply).

Q: Have you had a client who waived an appraisal contingency? How did you address this in the paperwork?

I have. In super competitive price points and neighborhoods, this has been happening for years. Agents who have built a team around them for support lean on an attorney to draft a document stating what will happen if the home does not appraise.  Sometimes (in a buyer’s market), this works the opposite way: the seller signs a document stating they will reduce the purchase price to the appraised value and/or reimburses the buyer for expenses incurred (home inspection, pest inspection, etc…) if the home doesn’t appraise.

Have a client in mind and ready to get started? Have a few more questions? We’re here to help. Visit Ribbonhome.com to book time with an expert.

Written by: 
Mackenzie Kruvant
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